Confidential

Maximising return on communications

Experiences in managing customer profitability from Nectar

Confidential

Presentation overview

• Loyalty Management Group Overview• Maximising return on communications case study• Summary and conclusions

Confidential

The Loyalty Management Group

Data Analytics International

LoyaltyManagementGroup

• Over 50% of UK households

• 16 consumer Sponsors

• 40+ rewards Suppliers

• Over £800m given back to customers

• Nectar for Business

• Nectar eStores

• 1988 Air Miles UK

• 1992 Air Miles Canada

• 1994 Air Miles Netherlands

• 1996 Travel Club Spain

• 2000 Air Miles Middle East

• 2002 Nectar

Nectar programme operator Analytics Service provider International development

• Customer Loyalty Management

• Category Management

• Brand Marketing

• Channel Management

Confidential

LMG Analytics Service Overview

Advertising Advertising Effectiveness Effectiveness MeasurementMeasurement

Channel Channel AnalysisAnalysis

Format Format PlanningPlanning

PricingPricing

PromotionPromotion RangingRanging

Performance Performance MeasurementMeasurement

Campaign Campaign ManagementManagement

Brand Loyalty Brand Loyalty AnalysisAnalysis

New Product New Product DevelopmentDevelopment

Location Location PlanningPlanning

Segmentation Segmentation & Profiling& Profiling

Channel Channel ManagementManagement

Customer Customer Loyalty Loyalty

ManagementManagement

Brand Brand ManagementManagement

Category Category ManagementManagement

Confidential

LMG Analytics Clients

Specialty retail

Food & drink retailing

Financial services

Telecoms & Utilities

Automotive

Travel

B2B

e-Commerce

Leisure & Entertainment

Department store & general merchandise

Confidential

Challenge: How to profitably communicate relevant messages to millions of people while addressing objectives of 20+ stakeholders

www.nectar.com

contact centre

sponsor campaigns

coalition campaigns

Nectar campaigns

sponsor POS

supplier POS

Increase frequency

Acquire

Activate new card

Increase loyalty

Acquire

Cross sell

Increase spend

Provide MOT service

Acquire

Re-activate

Encourage second visit

RetainIncrease number of Sponsors utilised

Redeem for most appropriate reward

Keep information up to date

Self-serve via the web

Shop online via eStores

Confidential

Approach

• Step 1: develop a meaningful customer segmentation– Behaviour-based segmentation– Overlay research data to evaluate attitudes– Profile using demographic, attitudinal and behavioural data

• Step 2: analyse communication needs per segment– Segment-level SWOT analysis– Prioritise key objective– Determine appropriate incentive and message

• Step 3: align marketing investment with segment profitability– Determine communications format and content for each segment– Select appropriate channels

• Keep testing and fine-tuning

Confidential

Application: the Nectar Points Update Mailing

• One of the most complex, high volume direct marketing pieces in Europe

• Different formats and frequencies depending on customer segment

• Variable elements facilitate extreme personalisation

– introduction letter– targeted messages– personalised rewards section– Sponsor coupon offers

• 7 million different combinations of coupon offers

Confidential

Step 1: develop a meaningful customer segmentation

Segmentation Requirements• Simple and intuitive

• Categorises appropriate share of the customer database

• Segments of significant sizes

• Sufficient differentiation

• Actionable

SatisfactionSatisfaction

EngagementEngagement

ValueValue

ParticipationParticipation

KnowledgeKnowledge

OpportunityOpportunity

SegmentationSegmentation

Research Data• 2800 survey respondents

• Shopping behaviour

• Loyalty programme participation

• Satisfaction

Transactional Data• Points accrual transactions

• Points redemption transactions

• Shopping behaviour across 17 retail and service brands

• Card usage vs automatic points collection

• Response to promotions

Confidential

The Nectar Marketing Communications Segmentation

Nectar IndifferentsRoutine Grocery Shoppers

Swipeless SaversContented X-Shoppers

Savvy Supermarket Shoppers

Bonus Seekers

Engaged Enthusiasts Profile

Compare

Confidential

Average Customer Profitability and Ability to Promote by Segment

Profitability Index

Prom

otab

ility

Inde

xStep 3: Overlaying financial data allows for improving the allocation of customer marketing investment

Low profitability, little opportunity to improve

via incentives

Low profitability, little opportunity to improve

via incentives

Low profitability, some opportunity to improve

via incentives

Low profitability, some opportunity to improve

via incentives

Highly profitable segments

Highly profitable segments

Low High

High

Low

Confidential

The format of each pack is based upon the segmentation with laser-printed personalisation throughout

Nice little earners from Nectar

Sponsor-specific messages• Predictive models• Decision trees• SQL-based segmentations

Nectar IndifferentsRoutine Grocery Shoppers

Swipeless SaversContented X-Shoppers

Savvy Supermarket Shoppers

Bonus Seekers

Engaged Enthusiasts

Personalised introduction

Personalised “Next best reward” offers

Confidential

Creative variations emphasise Sponsor offers, low threshold or aspirational rewards, and ways to earn points more quickly

Nice little earners from Nectar

Target Audience: Engaged Enthusiasts and Bonus Seekers

Nice little earners from Nectar

Target audience: Contented Cross Shoppers and Routine Grocery Shoppers

• Fewer coupons

• Highlighting low-threshold rewards

Nice little earner

Target audience: Savvy Supermarket Shoppers, Swipeless Savers and Nectar Indifferents

• Emphasis on aspirational rewards

• More prominent Nectar Credit Card offer

• Maximum targeting capability for Sponsors

• Four targeted messages

• Twelve Sponsor coupons

Confidential

Conclusions

• The segmentation allows the Customer Marketing Team to develop more relevant communications with a more efficient use of the available budget

– Look beyond behaviour and understand what Collectors are thinking– Build on affinities and appeal to their interests– Address what they are less happy about and help them get more out of the programme

• The segmentation forms a bridge between market research and the database– Market research and customer satisfaction programmes are carried out by segment– This provides a better understanding of the reasons why distinct groups are behaving in

different ways

• Establishing cross-functional team proved essential for project success– Ensured business requirements shaped the segmentation, not analytical capability– Segmentation adopted across the organisation– High level of quality achieved via appropriate selection of available data and analysis skills